Economy facing 'painful adjustment'

My Account
Logout

Create an Evening Standard Account

Use your social network

Save time by using your existing account to sign in to Evening Standard

We'll never share your information or post anything to your account without your permission

Welcome! Sign in here

Use your social network

Save time by using your existing account to sign in to Evening Standard

We'll never share your information or post anything to your account without your permission

Forgot your password ?

Registration

* indicates fields that are mandatory

Email *

Password *

Confirm Password *

First name *

Surname *

Postcode *

Country *

Mobile phone number

Username *

Gender *

Year of birth *

When you sign up...

You will have access to all our online competitions, discounted offers and can post comments on our site.

You will also receive The Weekender newsletter sent every Thursday - it’s full of fantastic offers and ideas for the weekend. You can update your email preferences in your account page when you log in.

Other newsletters and emails

Homes & Property Newsletter - Yes I want to receive the weekly email with all the latest news on property in the capital

Occasionally we would also like to send you relevant emails detailing specific offers either from ourselves or carefully selected partners. If you would prefer not to receive these then please tick the appropriate boxes below. We will never pass on your details.

I do not want to receive additional offers and information from the Evening Standard

I do not want to receive additional offers and information sent by Evening Standard on behalf of carefully selected partners

Terms and Conditions

* I have read, understood and agree to be bound by the terms and conditions of Evening Standard

Registration

Mail Sent for Registration Confirmation.

A confirmation email has been sent. Please activate your account by clicking on the activation link sent in your mail box.

Projections from the Bank show output broadly flat during the next year, but City economists said with inflation set to remain above target for some time it was unlikely that interest rates would come down in the near future.

The Bank's assessment of the UK economy is much gloomier than in May's quarterly report, amid weaker prospects for consumer spending and investment.

Mr King did not rule out the possibility that the UK could enter a period of recession, as defined by two successive quarters of negative growth. He said that with economic growth forecast to be broadly flat, it was "bound to be the case that there's a quarter or two of negative growth".

The Bank's report said with no rate cuts in the next two years inflation would most likely peak at just below 5% in the coming months before falling sharply next year and dipping below the official 2% target in two years' time.

Mr King said: "The adjustment of the UK economy to higher commodity prices and a more realistic pricing of credit will be painful. The next year will be a difficult one, with inflation high and output broadly flat. But with monetary policy focused on its task of bringing inflation back to the target, we will come through the adjustment.

"And we will return, if not to the 'nice' decade, then at least one that, as central bankers say, is not so bad."

Rising food and energy prices on Tuesday pushed up CPI inflation to 4.4% in July. The Bank warned there were serious upside risks to its projections, particularly from rising energy bills and wage growth.

Global Insight chief economist Howard Archer said: "Although the report dilutes fears that the Bank of England will raise interest rates, it also suggests that any cuts will be some time off as the Bank is determined to show its commitment to bringing inflation down to 2%."

"While we would not rule out a cut in November - particularly if the economy slows markedly further and oil prices continue to retreat - we are maintaining our view that interest rates will stay at 5% until early 2009.